President Bush signed a broad overhaul of pension and savings rules Thursday, giving millions of people a better chance of getting the retirement benefits they have earned.
The law, passed with fanfare by Congress two weeks ago, gives companies seven years to shore up funding of their traditional pensions, also known as defined benefit plans. Special rules for seriously underfunded companies require them to catch up faster.
The 30,000 such plans run by employers are estimated to be underfunded by $450 billion.
"Americans who spent a lifetime working hard should be confident that their pensions will be there when they retire," Bush said.
He added a stern instruction to corporate America.
"You should keep the promises you make to your workers," the president said. "If you offer a private pension plan to your employees, you have a duty to set aside enough money now so your workers will get what they've been promised when they retire."
At the same time, the law recognizes the evolution in workers' benefits - a gradual disappearance of pensions in favor of savings accounts such as 401(k)s that require workers to amass their own retirement savings.
Those accounts, also known as defined contribution plans, got a boost in the new law. It is this step that many expect will do the most over time to help people working toward retirement.
The law lets employers automatically enroll workers in 401(k) plans. In addition, there is a mechanism to increase gradually the amount saved, and employers are encouraged to match some of the dollars that workers stash away.
A nonprofit research organization, the Retirement Security Project, estimated that the change, when fully in effect, could mean employees will save an additional $10 billion to $15 billion in 401(k) accounts each year.
"Those additional contributions will bolster retirement security for millions of workers," said Peter Orszag, director of the project, which works to improve retirement benefits for low- and middle-income workers.
Some changes were sparked by corporate scandals that saw workers, who had put much of their nest egg in company stock, lose their retirement savings. The new law requires companies to give their workers more investment options.
The law is not without its critics, some of whom say it does nothing to encourage employers to offer pension benefits and the reliable income they give retirees.
Rep. Charles Rangel of New York, the top Democrat on the House Ways and Means Committee, said lawmakers may look back at the law as the "Trojan horse that brought the end of the defined benefit pension system."
"Erosion of the defined benefit pension system represents a dangerous shift from a 'we' society to a 'me' society, where every worker is on his or her own," he said.
The ERISA Industry Committee, which represents the retirement, health and compensation plans of the nation's largest employers, said the number of defined benefit pension plans fell from 112,000 in 1985 to fewer than 30,000 in 2004.
Of those still in place, the group said, many are closed to new participants or frozen, preventing employees from earning new benefits.
"With each past reform - often based on government revenue needs - employers have exited the defined benefit system as a result of the governments changes, which often resulted in burdensome and costly regulations," said Mark Ugoretz, the committee's president.
Leaders hope these revisions will prevent a costly taxpayer bailout of the federal agency that insures the pension system, the Pension Benefit Guaranty Corp. Some fear taxpayers will pay if too many companies dump their plans at once.
"Every American has an interest in seeing this system fixed, whether you're a worker at a company with an underfunded pension or a taxpayer who might get stuck with the bill," Bush said.
The law also:
_gives airlines that are in bankruptcy proceedings and have frozen their pensions an extra 10 years, or 17 years total, to meet their funding obligations. Others with active plans get 10 years to meet their obligations.
_requires companies to give employees more information about their pensions.
_puts certain "hybrid" plans, which have been challenged as discriminating against older workers, on stronger legal footing.
_says companies with seriously underfunded plans cannot promise their workers bigger benefits.
_makes permanent the higher savings contribution limits that were set to expire in the next decade. People can now put more money in their IRA and 401(k) accounts in the coming years. That includes a new option made available this year known as Roth 401(k)s. Those accounts let workers pay tax on their earnings before saving, but the money then accumulates and can be spent in retirement tax-free.
The Human Rights Campaign praised the law for changes that the group said will help same-sex couples by expanding benefits once only allowed for spouses or dependents.
Bush praised the measure for enacting the most sweeping overhaul in more than 30 years. But he said the changes must be coupled with revisions to the two government programs that benefit retirees, Social Security and Medicare.
"As more baby boomers stop contributing payroll taxes and start collecting benefits - people like me - it will create an enormous strain on our programs," said Bush, who turned 60 last month.
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